Concession scheme/nutrient based subsidy policy for decontrolled Phosphatic & Potassic fertilizers

Government of India decontrolled Phosphatic and Potassic (P&K) fertilizers with effect from 25th August 1992 on the recommendations of Joint Parliamentary Committee. Consequent upon the decontrol, the prices of the Phosphatic & Potassic fertilizers registered a sharp increase in the market, which exercised an adverse impact on the demand and consumption of the same. It led to an imbalance in the usage of the nutrients of N, P & K (Nitrogen, Phosphate and Potash) and the productivity of the soil. Keeping in view the adverse impact of the decontrol of the P&K fertilizers, Department of Agriculture & Cooperation introduced Concession Scheme for decontrolled Phosphatic & Potassic (P&K) fertilizers on ad-hoc basis w.e.f. 1.10.1992, which has been allowed to continue by the Government of India upto 31.3.2010 with changed parameters from time to time. Then the Government introduced Nutrient Based Subsidy Policy w.e.f. 1.4.2010 (w.e.f. 1.5.2010 for SSP) in continuation of the erstwhile Concession Scheme for decontrolled P & K fertilizers.

The basic purpose of the Concession Scheme and Nutrient Based Subsidy Policy has been to provide fertilizers to the farmers at the subsidized prices. Initially, the ad-hoc Concession Scheme was introduced for subsidy on DAP, MOP, NPK Complex fertilizers. This scheme was also extended to SSP from 1993-94. Concession was disbursed to the manufacturers/importers by the State Governments during 1992-93 and 1993-94 based on the grants provided by Department of Agriculture & Cooperation. Subsequently, DAC started releasing payment of concession to the fertilizer companies based on the certificate of sales issued by the State Governments on 100% basis.

The Government introduced the system of releasing 80% 'On Account' payment of concession in 1997-98 to the fertilizer companies month-wise, which was finally settled based on the certificate of sales issued by the State Government. During 1997-98, Department of Agriculture & Cooperation also started indicating an all India uniform Maximum Retail Price (MRP) for DAP/NPK/MOP. The responsibility of indicating MRP in respect of SSP rested with the State Governments. The Special Freight Subsidy Reimbursement Scheme was also introduced in 1997 for supply of fertilizers in the difficult areas of J&K and North-eastern States, which continued upto 31.3.2008. Based on the cost price study of DAP and MOP conducted by Bureau of Industrial Costs & Prices (BICP - now called Tariff Commission), Department of Agriculture & Cooperation started announcing rates of concession based on the cost plus approach on quarterly basis w.e.f. 1.4.1999. The total delivered cost of fertilizers being invariably higher than the MRP indicated by the Government, the difference in the delivered price of fertilizers at the farm gate and the MRP was compensated by the Government as subsidy to the manufacturers/importers for selling the fertilizers at the MRP indicated by the Government.

The administration of the scheme was transferred from Department of Agriculture & Cooperation to Department of Fertilizers w.e.f. 1.10.2000. The Government introduced a new methodology for working out subsidy to complex fertilizers w.e.f. 1.4.2002 based on the recommendations of the Tariff Commission. The complex manufacturers were divided into groups based on feedstock for sourcing Nitrogen, such as gas, naphtha, imported ammonia. With the passage of time, the structure of DAP industry also changed as some of the new DAP manufacturing plants were established using the Rock Phosphate for manufacturing indigenous Phosphoric acid/DAP. Accordingly, the Tariff Commission made a fresh Cost Price Study and submitted its report in February 2003. Payment of concession to the DAP manufacturing units from 2003-04 to 2007-08 was made as per two groups depending upon the source of the raw materials (Rock Phosphate/ Phosphoric acid). Based on the decisions of the Government in 2004-05, Department of Fertilizers framed a proposal suggesting methodology to link phosphoric acid price with international DAP price. Subsequently, the matter was referred to the Expert Group. The Expert Group under Prof. Abhijit Sen, submitted its report in October 2005.

The recommendations of the Expert Group were considered by an Inter-Ministerial Group (IMG). Tariff Commission conducted fresh cost price study of DAP/MOP and NPK complexes and submitted its report in December 2007. Based on the examination of the Tariff Commission Report and the long-term approach suggested by the Expert Group under the Chairmanship of Prof. Abhijit Sen, the Government approved the Concession Scheme with effect from 1.4.2008 for DAP/MOP/NPK Complexes/ MAP, which continued upto 31.3.2010 with certain modifications. The final rates of concession were worked out on monthly basis. Concession for indigenous DAP was the same as that of imported DAP (on the basis of import parity price). Concession on complex fertilizers was based on the methodology recommended by Tariff Commission with certain modifications.

The NPK complex industry was divided into 4 groups, depending upon the source of Nitrogen, gas, naphtha, imported Urea-ammonia mixture and imported Ammonia. A separate cost of 'S' for Sulphur containing complex fertilizers was recognized w.e.f. 1.4.2008. The input/fertilizer prices for Concession Scheme was derived on the basis of an outlier methodology. The Buffer Stocking Scheme was allowed to continue with 3.5 Lakh MTs for DAP and 1 Lakh MTs for MOP as buffer. Modifications in certain elements of the Concession Scheme were also carried out with effect from 1.4.2009 to adjust parameters of concession scheme to International pricing dynamics and rationalize 'N' pricing group-wise as well as payment system. Certain changes were effected in the existing policy for P &K Fertilizers. Accordingly, w.e.f. 1.4.2009 final rates of concession were worked out on monthly basis, taking into account the average international price of the month preceding the last month or the actual weighted average C&F landed price at the Indian ports for the current month, whichever lower with respect to DAP and MOP. In case of raw materials/ inputs for complex fertilizers, there was a lag of one month. From 1.12.2008, payment of concession has been made to the manufacturers/importers of the Decontrolled fertilizers (except SSP) on the basis of arrival/ receipt of fertilizers and certificate of receipt by the State Government/statutory auditor of the company subject to final settlement on the basis of sale of the quantity.

The MRPs of the P&K fertilizers, which has been indicated by the Government/State Government, has been constant since 2002 till 31.3.2010. The MRPs of the NPK complexes were reduced w.e.f. 18.6.2008. In order to enhance the basket of fertilizers in the Concession Scheme, Mono- Ammonium Phosphate (MAP) was included into the Concession Scheme w.e.f. 1.4.2007, Triple Super Phosphate (TSP) was inducted into the Concession Scheme w.e.f. 1.4.2008 and Ammonium Sulphate (AS) manufactured by M/s FACT and M/s GSFC was inducted w.e.f. 1.7.2008.

(A) Nutrient Based Subsidy Policy for decontrolled Phosphatic & Potassic fertilizers

In the implementation of Concession Scheme, it has been experienced that no investment has taken place in last decade. The subsidy outgo increased exponentially by 530% during 2004 to 2009 with about 90% of the increase due to rise in the international prices of fertilizers and inputs. Agricultural productivity did not register increase in commensurate with the increase in the subsidy bill. The MRP of the fertilizers remained constant from 2002 onwards. A Group of Ministers (GoM) constituted to look into all aspects of the fertilizer regime, recommended that Nutrient Based Subsidy (NBS) may be introduced based on the contents of the nutrients in the subsidized fertilizers. The Hon'ble Finance Minister in its Budget Speech 2009 announced for introduction of Nutrient Based Subsidy Policy for Phosphatic & Potassic fertilizers with the objective of ensuring Nation's food security, improving agricultural productivity and ensuring the balanced application of fertilizers. The Government introduced the Nutrient Based Subsidy (NBS) Policy w.e.f. 1.4.2010 in continuation of the erstwhile Concession Scheme for decontrolled P & K fertilizers (w.e.f. 1.5.2010 for SSP). The details of Nutrient Based Subsidy Policy are as under:

•    NBS is applicable for Di Ammonium Phosphate (DAP, 18-46-0), Muriate of Potash (MOP), Mono Ammonium Phosphate (MAP, 11-52-0), Triple Super Phosphate (TSP, 0-46-0), Single Super Phosphate (SSP, 0-16-0-11), Ammonium Sulphate (AS - (Caprolactam grade by GSFC and FACT) and 21 grades of complex fertilizers which. Primary nutrients, namely Nitrogen 'N', Phosphate 'P' and Potash 'K' and nutrient Sulphur 'S' contained in the fertilizers mentioned above are eligible for NBS.

•    Any variant of the subsidized P&K fertilizers covered under NBS Policy and are fortified/coated with Boron and Zinc, as provided for under FCO, will continue to be eligible for subsidy. Such fortified/coated grades of fertilizers will attract an additional per tonne subsidy to encourage their application along with primary nutrients. Additional subsidy rates are Rs. 300 per MT and Rs. 500 per MT for Boron and Zinc respectively.

•    An Inter-Ministerial Committee (IMC) has been constituted with Secretary (Fertilizers) as Chairperson and Joint Secretary level representatives of Department of Agriculture, Cooperation and Farmers Welfare (DAC&FW), Department of Expenditure (DOE), NITI Aayog and Department of Agricultural Research and Education (DARE). This Committee recommends per nutrient subsidy for 'N', 'P', 'K' and 'S' before the start of the financial year for decision by the Government (Department of Fertilizers). The IMC also recommends a per tonne additional subsidy on fortified subsidized fertilizers carrying secondary (other than 'S') and micro-nutrients. The Committee considers and recommends inclusion of new fertilizers under the subsidy regime based on application of manufacturers/ importers and its need appraisal by the Indian Council for Agricultural Research (ICAR), for decision by the Government.

• NBS to be paid annually/bi-annually on each nutrient namely, 'N', 'P', 'K' and 'S' has been decided/announced by the Government for 2024-25.
• Distribution and movement of fertilizers along with import of finished fertilizers, fertilizer inputs and production by indigenous units continues to be monitored through the on-line web based "Integrated Fertilizer Monitoring System (iFMS)" (erstwhile FMS and mFMS).
• The fertilizer companies are required to print Maximum Retail Price (MRP) along with applicable subsidy on the fertilizer bags clearly. Any sale above the printed MRP will be punishable under the EC Act.
• In addition to NBS, freight for the movement and distribution of the decontrolled fertilizers by rail and road is being provided to enable wider availability of fertilizers in the country as per guidelines dated 23.7.2012 (Annexure – ‘A’).
• In order to examine the reasonableness of MRPs of P&K fertilizers, the companies shall continue to submit the certified cost data as per the requirement and directions of DOF from time to time. The companies shall also report MRPs of P&K fertilizers regularly to DOF.
• Manufacturers of customized fertilizers and mixture fertilizers are eligible to source subsidized fertilizers from the manufacturers/ importers after their receipt in the districts as inputs for manufacturing customized fertilizers and mixture fertilizers for agricultural purpose. There is no separate subsidy on sale of customized fertilizers and mixture fertilizers.
• The payment of subsidy to the manufacturers/importers of P&K fertilizers shall be released as per the procedure and terms and conditions mentioned in the Department Notification No. D(FA)/CCEA/2011 dated 25.10.2020 and D(FA)/2016/DBT dated 17.3.2017, as amended from time to time.  

(B) Nutrient Based Subsidy Per Kilo Gram of Nutrients

Based on the recommendations of the Inter Ministerial Committee constituted under the Nutrient Based Subsidy Policy, the Government has allowed the per Kg NBS for 'N', 'P', 'K' & 'S' (Nitrogen, Phosphate, Potash and Sulphur) and the amount of subsidy per MT on the Phosphatic & Potassic fertilizers for 2014-15 to 2024-25 is as under:

(a) Per Kg NBS rates for nutrients N, P, K, and S for the 2014-15 to 2024-25:

*Including Rs. 300/- per MT for secondary freight from rake point to retail points.

** Excluding the secondary freight of Rs. 300/- PMT, which were being paid separately on per ton per Km basis.

(b) Per MT subsidy on different P&K fertilizers during 2014-15 to 2024-25: